February 26, 2019 / 9:28 AM / 8 months ago

Hungarian central bank holds rates, focus shifts to March meeting

BUDAPEST (Reuters) - Hungary’s central bank left interest rates steady at record lows on Tuesday as it prepared the ground for a shift away from years of ultra-loose monetary policy in response to inflationary pressure - possibly at its next meeting in March.

Hungarian Central Bank Governor Gyorgy Matolcsy speaks during a parliamentary committee hearing in Budapest, Hungary, February 26, 2019. REUTERS/Tamas Kaszas

All 16 analysts surveyed by Reuters between Feb. 19-21 forecast the bank would keep both its 0.9 percent base rate and -0.15 percent overnight deposit rate on hold. The base rate has been at a record low since spring 2016.

At 1301 GMT, the forint traded at 317.04 versus the euro, unchanged from levels just before the rates announcement. The bank will publish a policy statement at 1400 GMT.

Earlier Bank Governor Gyorgy Matolcsy - reappointed by lawmakers on Tuesday for a further six years - said it had entered a phase of policy normalisation.

It has adopted a range of monetary easing measures to curb borrowing costs and flood the economy with cheap credit since 2013. Lower rates have led to a lending boom but core inflation has increased steadily, and the bank is widely expected to start tightening policy soon.

The bank “is in a normalisation phase, while also preserving the character stemming from its (mandate),” Matolcsy told a parliamentary committee hearing.

“It is predictable and has one single anchor in its inflation targeting system: the 3 percent plus/minus 1 percentage point (target).”

Core inflation adjusted for the effects of indirect taxes, the central bank’s preferred measure, rose to 3 percent in January from 2.9 percent in December.

Analysts say the bank could possibly start tightening in March - when it also issues its next inflation report - if core inflation continues to rise.

Matolcsy said the inflation report would give a signal about any changes to interest rate policy and other parts of the bank’s monetary toolkit.

Economists at Goldman Sachs said core inflation could rise to 3.1 percent in February.

“We think this would be sufficient to trigger the announcement of the process of ‘monetary policy normalisation’ at the March 26 meeting, with the process beginning in Q2,” they said, forecasting the first official rate hike in the first quarter of next year.

Reporting by Gergely Szakacs and Marton Dunai; Editing by John Stonestreet

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